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20, 2013

Crowdfunding the Exotic Free Energy Movement

NEST will soon be launching a crowdfunding site that will help make the
funding of clean energy ventures more democratic, based on the votes of the
people who chip in. And not long from now, US citizens will even be able to make
small investments through crowdfunding.

PREFACE NOTE:
The New Energy Systems Trust (NEST) is now in the beta testing phase of their new crowdfunding site (for receiving donations [not investments yet] for projects). If you would like to have your technology included as one of the crowdfunding options at the launch, please send an email to
Ray.J@EnergyNEST.org.

With the enactment of the Crowd Fund Act in April of
2012, we are all poised to witness a new and potentially profound effect upon the exotic free energy movement. The new law, which seems to have largely flown under the radar, was set to take effect January, 1, 2013, or when the SEC sets in place the rules to protect investors, whichever occurs later

..In the mean time, for those that are unfamiliar with the concept, crowdfunding is the idea of using the internet to raise funds for a project. Think of it as an internet version of buying a brick to support the construction of your local library. If you care about libraries, you probably have your name on a brick or two already. If
you've been to a library lately, you've probably at least seen one. Crowdfunding is a pretty similar concept.

Existing
crowdfunding platforms such as Kickstarter,
ArtistShare,
Pledgemusic,
PleaseFund.Us,Funding4Learning,
Indiegogo,
GoFundMe, RocketHub,
Fondomat, Rock
The Post, Peerbackers
and Sponsume,
are presently using crowdfunding to raise funds for music, projects, charity, books, movies, concert tours. You name it, probably even libraries.
Rather than getting your name on a brick in return for your donation, the internet crowdfunding sites provide rewards like a t-shirt, an album, an autograph, a ticket to a show, a product, a discount, or maybe even an invitation to a party. Fans of bricks will also be happy to know that bricks are not entirely ruled out either. Overall, though, the crowdfunding rewards tend to be a bit more creative--and this concept has more traction than any brick ever did, pun intended.

Soon, you can add "equity" in a startup company to the list of crowdfunding rewards.

So, how does it work? Well, traditionally (like since, say ahem, circa 2006 or so), websites have been hosting artists who need to raise money for a particular project, like a short film. The website (called the intermediary) provides space for the artist pitch their idea. An artist proposing a project typically creates the pitch using text, graphics and video. They are usually pretty cool ideas, done by pretty cool artists. And perhaps because they are artists, the pitch is usually pretty entertaining in and of itself. Some are really very funny.

More importantly though, there is always a specific fundraising goal and a specific timeframe to raise the funds, usually something like 30 days. Many sites hold the money in escrow until the funding goal is met, then money is released to the artist, the artist makes his art, and presumably those that contributed get their metaphorical brick.

If the goal isn't met, the money is returned to the donor. The intermediary keeps anywhere from 5-8% of the cash raised on the fully funded projects. (This is the all or nothing formula. There are variations in which the intermediary keeps a higher percentage if the goal is not met.)

So, how does this relate to free energy? Well, in case you haven't already guessed, the new law will allow startups to advertise opportunities for people to invest their money in return for an equity stake in
those companies. This includes free energy startups. You simply
couldn't do this before, legally speaking. In fact, presently, advertising or soliciting investment in a startup could get you into some serious trouble with the SEC and/or your local Attorney General (unless you go through an expensive Regulation D exemption process).

As a consequence, small businesses have been historically limited in their ability to raise capital. If you are an entrepreneur, you usually start to raise capital from your friends or family first (angel investors), then once you get going, you probably go to the bank and beg for a loan. If your idea is wildly successful or innovative, you might get venture capital funding at some point; but
let's face it, that is exceedingly rare, especially nowadays. Ask anyone who has tried.

All that is about to change with the Crowd Fund Act. Free energy inventors will soon have another option, pitching their free energy invention directly to the public, complete with an equity share opportunity.

Crowdfunding Advantages

What are the upsides of crowdfunding?

It's democratic

First of all, crowdfunding is wildly democratic (with a small "d") in the sense that investing in startup companies becomes available to everyone. Soon, you
won't have to be an "accredited" investor (b.t.w., that's SEC speak for rich person) or have a net worth of $1M or more to invest in a startup company. In fact, if
you're investing less than $2000.00 there will likely be very little restriction at all (although
we'll have to see what the rule-makers do). Most people pledge less than $100.00, anyway.

It's also true that those that are investing $2000 or more must meet minimum income requirements, but investing in startups will no longer be reserved for just the richest 4%, or insiders, like your uncle. And, in the democratic spirit, rich dudes can still invest, too! So, it will be the public, by voting with their dollars, that will determine whether a startup gets funded. What could be more democratic than that?

Moreover, the crowdfunding process itself is democratic. People on crowdfunding sites can interact directly with the inventor and
they can interact with each other. If
you're interested, you can comment on the merits of the invention or perhaps make helpful suggestions for improvement. An unsuccessful funding attempt could conceivably prompt inventors to go back to the drawing board. There is no restriction on trying again.

Intermediaries are motivated to only accept the best inventions and projects for their crowdfunding platform. Why? Because they
don't get paid unless the funding goal is met -- unless the 'take what you make' option is in play.

Marketing

A successful crowdfunding campaign is proof of traction. If the public gets behind an invention, the inventor has his potential customers already engaged. The investors will follow your progress and be the first to promote invention when it gets produced.

Second Stage investors will take note. Let's say a startup raises $150K from the public in a few
days. You had better believe that companies with serious money will take note of that fact when you approach them for further funding down the road. A successful campaign gives an invention credibility in the way that investment money from your uncle can not.

Drawbacks

What are the drawbacks to crowdfunding?

Fraud

The potential is always there that someone will raise money with their idea and not do what they say they are going to do and simply defraud investors.

But let's consider this problem for a moment. Fraud happens, yes, and it probably will happen again, but ironically, crowdfunding might actually make it less likely. Crowdfunding is a public act.
It's out in the open. The inventor, his company and his pitch are part of the public (albeit digital) record. Crowdfunding of free energy technologies may draw potential fraudsters out into the open where they can be examined and their ideas put to the test by the public. The crowdfunding platform holds inventors up to public scrutiny in a way that has never been possible before. The Bernie
Madoff's of the world operate in secret, in back rooms, on a wink and a nudge. Those types are unlikely to find a public forum attractive.

The SEC is charged with the responsibility of writing rules which will presumably help protect investors from fraud, so
we'll have to wait and see how that goes.

Investors could lose everything

Very true. Equity investment is extremely risky. Investors in this type of scheme also have no control
over how the money is spent. There is no guarantee that the invention will ever see the light of day.
It's also a long shot that there will be a future round of funding, or a sale of the company, which would enable you to convert your equity into stock or cash. Forget about going
public; buy a lottery ticket instead.

Even if a startup is relatively successful, it will likely be many years before you reap any reward; and it is impossible to predict with any certainty how much you might get in return. Furthermore, if a project does fail, it is
uncertain at this point what legal recourse investors will even have. The bottom line is you should not pledge anything but throw-away type money. This is the kind of money you would spend on that lottery ticket. If you need to see a return on your money, buy into a mutual fund.

On the other hand, crowdfunding presents an opportunity to get actively involved in the free energy movement with relatively small amounts of money. You
don't need to spend thousands of dollars on crazy "licensing" fees. You don't need to fly to Arizona to attend a secret
investor's meeting. You can pledge ten bucks and sit back and watch the show.

Theft of the idea

Inventors may be unlikely to want to share their idea or invention in a public forum for fear of it being stolen. Well, maybe so. But, if
that's the case, then the invention is probably not ready for starter capital
anyways. This is also a classic red flag.

On the flip side, I see crowdfunding as potentially a new vetting process. Very soon, I predict, inventors will be asked the question: if your invention is so hot, why
aren't you crowdfunding it?

Ramifications for the Free Energy World

In fact, I see crowdfunding as such a potential gamechanger that

New Energy Systems Trust (NEST) is now preparing to launch a crowdfunding site.

That's right. NEST is now preparing to launch a crowdfunding site specifically dedicated to free and alternative energy inventions and projects.

Why am I telling you this? Well, frankly because we could use your help. NEST is essentially a volunteer effort at this point, and we could use your help and skill to help us launch our new crowdfunding platform.

We would also like your ideas for potential free energy projects to host on our site. If you are an inventor, you can start to put together your pitch. Perhaps we can fund your prototype in exchange for a brick (just kidding).

Am I afraid you'll steal the idea? Hell no. That's the way we roll. Go for it. We hope you succeed.
It'll keep us from having to do all the work!

But seriously folks, this crowdfunding thing is big; really big. Crowdfunding aligns perfectly
with NEST's goal of helping to bring free energy devices to market. So I say, let's get started.

Ray Jennings is a practicing Attorney in Massachusetts and President of NEST

"It is harder to crack a prejudice than an atom." // "I'd rather be an optimist and a fool than a pessimist and
right." -- Albert Einstein

ADVISORY: With any
technology, you take a high risk to invest significant time or money
unless (1) independent testing has thoroughly corroborated the
technology, (2) the group involved has intellectual rights to the
technology, and (3) the group has the ability to make a success of
the endeavor.

All
truth passes through three stages:
First, it is ridiculed;
Second, it is violently opposed; and
Third, it is accepted as self-evident.

--
Arthur Schopenhauer (1788-1860)

"When you're one step ahead
of the crowd you're a genius.
When you're two steps ahead,
you're a crackpot."